Does moral hazard even exist anymore? The list goes on -- auto companies, banks, insurance companies and now countries.
Crude closed lower today for the fourth consecutive day and below the 9 day MA for the first time in 10 sessions. We are operating under the assumption that prices will make an attempt at the 20 day MA at $83.03 in May. Clients are advised that if we see a trade down to $82/83 and it holds, we will have some bullish suggestions. Natural gas continues to consolidate as a base appears to be forming. Today’s action was not super bullish but at least we did get a higher high and higher low. We are recommending scaling into June futures as well as purchasing July 50 cent call spreads.
We are waiting for a signal from the markets that an interim top has been made in indices but have yet to see it. If and when, we will be looking to re-position clients short vie June ES shorts and or put options. Allow 30-year bonds and 10-year notes to rally more before initiating shorts. We expect to see a trade closer to 118′00 in both instruments this week or next.
May sugar traded above the 20 day MA for the first time since the first week of February when prices were at 27 cents/lb. On a settlement above that level we will be looking to buy calls in July and October for clients. In today’s trade we initiated some spreads for clients; buying May and selling October anticipating the spread to narrow and May to go back to a premium. Cotton continues to be a sell rallies market as long as July does not settle above 80 cents. Those that have yet to buy OJ we suggest scaling into longs as we anticipate a bounce.
Corn was higher on the day but we would like to see a settlement above the 20 day MA in the coming days; that level is $3.54′4 in May. Aggressive traders could be short June lean hogs and June live cattle with stops above the recent highs. We’re pricing out delta neutral strategies in August cattle and should have suggestions in the coming sessions.
Could today have been a key reversal in the metals? May copper closed almost 15 cents off its highs, gold $15 off its highs and silver 40 cents. At the moment we will not get short gold or silver though we think new buyers should remain on the sidelines as we could see a $50 move lower in gold and $1 lower in silver very easily in our opinion. We suggest buying out of the money December puts in copper, thinking we will make a seasonal high some time in April/May.
The dollar traded to its lowest level in 3 1/2 weeks and if 80 is penetrated, that would confirm an interim top. Dollar weakness would most likely translate to a move north in the Euro, Pound and Swissie. We will be looking to sell these rallies from higher levels with clients... stay tuned. If we do get a move south in energies and metals, we should finally get the Loonie moving down. Clients are selling rallies and buying June puts lightly.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.